Don’t Mess With American Ingenuity

By Douglas E. Schoen

What if I told you that labor unions, small-business associations, drug companies, physicians’ groups, prominent academics, and the Bush administration were all lined up against a major piece of federal legislation currently winding its way through congress?

Would the convergence of these normally disparate interests make you suspicious of the legislation, sight unseen?

It should. All these groups have publicly opposed the Patent Reform Act, a bill that’s supposedly aimed at modernizing America’s patent system. Backed by several large technology companies, the measure passed the House last September and is currently under consideration in the Senate.

To be sure, the U.S. patent system is in need of change; it’s costly, complicated and litigious. But the Patent Reform Act goes overboard with its overhauls, drastically weakening intellectual property protections and jeopardizing future innovation.

Take, for instance, a provision in the bill reworking the way that patent-infringement damages are calculated.

Currently, damages are based on the market value of the product as a whole, factoring in the patented innovation. Generally speaking, courts have asked how much money the patent holder would have made if the infringement hadn’t occurred. The dollar answer is roughly equivalent to how much the infringer owes the innovator.

The bill would narrow that calculation to consider only the economic value of the patented innovation itself, not the value of the product on the whole.

That switch might make sense for, say, patented parts in mechanical products. It’s relatively easy to appraise a particular kind of rudder, for instance, outside the total value of the airplane it’s used in.

After all, a Boeing 747 with a different rudder is still a Boeing 747.

But the switch is illogical when it comes to other products, like pharmaceuticals. Active drug ingredients normally aren’t worth a dime outside the context of the drugs they’re in. What’s more, it’s effectively impossible to parse out the benefits of a particular patented portion of a drug.

Thus, the new standard would both drastically decrease the monetary value of a slew of U.S. pharmaceutical patents and reduce the damages for infringing on those patents.

Consequently, a chilling question arises: Would you invest nearly a billion dollars — the average cost to bring a new drug to market — on a new medication if a counterfeiter could copy it the second it went on sale and pay you only a small fraction of his profits as penalty?

If you wouldn’t, do you think America’s pharmaceutical companies would?

The benefits of medical innovation cut across party lines. Undermining the patent protections that drive that innovation is bad news for everyone. No wonder the Patent Reform Act is finding opposition across the political spectrum.

Douglas Schoen was a campaign consultant for more than 30 years and is the author of Declaring Independence: The Beginning of the End of the Two-Party System.